T.C. Summary Opinion 2011-19

UNITED STATES TAX COURT

JAMES STEPHEN FENNEL, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Docket Nos. 5360-09S, 16313-09S, Filed February 28, 2011.

 16315-09S.

James Stephen Fennel, pro se.

Randall B. Childs, for respondent.

MORRISON, Judge: These cases were heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

at the time the petition was filed. Pursuant to section 7463(b),

the decisions to be entered are not reviewable by any other

Court, and this opinion shall not be treated as precedent for any

other case. Unless otherwise indicated, section references are

to the Internal Revenue Code in effect for the years in issue. 
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James Stephen Fennel worked as a server at Carrabba’s

Italian Grill in Tallahassee, Florida. For his services to

Carrabba’s, Fennel was paid $17,049.79 in 2004, $16,978.08 in

2005, and $22,655.73 in 2006. OS Restaurant Services, Inc.,

reported paying wages to Fennel in these same amounts for 2004,

2005, and 2006.1 Payment for services is income that must be

included in gross income. Sec. 61(a)(1). However, Fennel filed

Forms 1040, U.S. Individual Income Tax Return, for the 2004,

2005, and 2006 tax years showing zero taxable wages and zero

taxable income. Instead of attaching the Forms W-2, Wage and Tax

Statement, issued by OS Restaurant Services, Inc., showing his

actual income, Fennel attached Forms 4852, Substitute for Form W2, Wage and Tax Statement, on which he reported zero wages, tips

and other compensation (on line 7a) and zero income tax withheld

(on line 7f). Question 9 of the Forms 4852 asked: “How did you

determine the amounts on lines 7 and 8 above?” Fennel wrote:

“Company provided records and the statutory language behind IRC

sections 3401 and 3121 and others”. Question 10 of the Forms

4852 asked: “Explain your efforts to obtain Form W-2, Form 1099-

R, or Form W-2c, Corrected Wage and Tax Statement.” Fennel

wrote: “None. Most companies will refuse to issue forms

1The Internal Revenue Service (IRS) claims that OS

Restaurant Services, Inc., is the parent company of Carrabba’s

Italian Grill. The relationship of OS Restaurant Services, Inc.,

to Carrabba’s Italian Grill is not important.
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correctly listing payments of ‘wages as defined in 3401(a) and

3121(a)’ for fear of IRS retaliation. However, the amounts

listed as withheld on the W-2 it submitted are correct.” 

The IRS issued notices of deficiency to Fennel. The notices

determined, on the basis of his unreported income from

Carrabba’s, that Fennel had deficiencies of $1,004 in 2004, $951

in 2005, and $1,756 in 2006. The IRS also determined that Fennel

was liable for section 6651(a)(1) additions to tax of $251 for

2004, $237.75 for 2005, and $439 for 2006 for failing to file

timely tax returns. The IRS also determined that Fennel was

liable for section 6662 accuracy-related penalties of $200.80 for

2004, $190.20 for 2005, and $351.20 for 2006. Fennel filed

petitions with the Tax Court to redetermine the deficiencies. 

The Court consolidated the three cases for trial. At the end of

trial, the IRS moved for the imposition of a penalty under

section 6673.

OPINION

1. Deficiencies in Tax

The first issue for decision is whether Fennel earned and

failed to report income of $17,049.79 in 2004, $16,978.08 in

2005, and $22,655.73 in 2006. We find that he did. Fennel

admitted that he received payments in these amounts for his

services.
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2. Additions to Tax for Filing Late Returns

The second issue for decision is whether Fennel is liable

for additions to tax pursuant to section 6651(a)(1) of $251 for

2004, $237.75 for 2005, and $439 for 2006. Fennel is a calendaryear taxpayer. Income tax returns made on the basis of a

calendar year must be filed on or before April 15 of the

following year. Sec. 6072(a). The IRS may extend this deadline

by up to 6 months. Sec. 6081(a). Fennel received a 6-month

extension of the filing deadline for his 2005 and 2006 returns. 

None of Fennel’s Forms 1040 for 2004, 2005, and 2006 were filed

by October 15 of the following year. Fennel’s Forms 1040 for

2004 and 2005 were filed on or after August 7, 2007. Fennel’s

Form 1040 for 2006 was filed on or after November 3, 2007. If a

person required to file a return fails to do so timely and such

failure is not due to reasonable cause, then the person is

required by section 6651(a)(1) to pay an additional 5 percent of

the amount of tax required to be shown on the return. An

additional 5 percent is added for each additional month that

passes without a return’s being filed. Id. The maximum amount

is 25 percent. Id. Fennel failed to show any reasonable cause

for failing to file tax returns on time. He is therefore liable

for the additions to tax.
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3. Penalties for Inaccurate Returns

The third issue for decision is whether Fennel is liable for

penalties pursuant to section 6662(a) of $200.80 for the 2004 tax

year, $190.20 for the 2005 tax year, and $351.20 for the 2006 tax

year. Section 6662(a) imposes a penalty “on any portion of an

underpayment of tax required to be shown on a return” to which

section 6662(a) applies. Section 6664(b) provides that the

penalty applies only if “a return of tax is filed”. Fennel’s

Forms 1040, filled with zeros, were not valid returns. 

Therefore, the section 6662 penalty cannot be imposed. See

Turner v. Commissioner, T.C. Memo. 2004-251 (Form 1040 that

contained zero entries for every line regarding income was not

valid for purposes of imposing the section 6662(a) penalty). 

4. Penalty for Frivolous Litigation

The fourth issue for decision is whether Fennel should be

penalized under section 6673. Section 6673(a)(1) authorizes the

Tax Court to impose a penalty of up to $25,000 if the taxpayer

instituted the proceedings primarily for delay or if the

taxpayer’s position is frivolous or groundless. Fennel’s main

argument, which is that he is not subject to tax on his wage

income because “OS Restaurant Services, Inc. is a private

corporation organized under the laws of Delaware and has no

connection with the United States government, its territories, or

possessions”, is frivolous. In addition, we believe that these
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proceedings were instituted for delay, not to resolve a genuine

dispute. Although we held that Fennel was not liable for the

section 6662 penalty, we did so only because we found the Forms

1040 he filed to be so frivolous as to not be valid returns. We

shall impose a $750 penalty under section 6673 in each case. 

To reflect the foregoing,

Appropriate orders and

decisions will be entered.